The biggest, brashest deals ever

By Luke Johnson

12:01AM BST 11 Jul 2004

The biggest, brashest deals ever

By Luke Johnson (Filed: 11/07/04)

New issue

The biggest new issue was launched on 13 March 1986 when Microsoft Corporation went public. The shares were sold at $21 each to raise just over $58m. The business had historic revenues of $140m and operating profits of $41m - juicy margins of 29 per cent. Some were concerned that the margins were unsustainable.

The shares were priced at almost 20 times prospective earnings, but proved popular in the after-market, rising to $27 within days. As a consequence the initial institutional investors sold half their allocation immediately post the float.

The founder and chairman, Bill Gates, sold just $1.6m of shares and used some of the proceeds to pay off his $150,000 mortgage. He retained 45 per cent of the company worth $350m, and discouraged any staff from selling more than a 10th of their holding. His patience proved wise. Each $21 share would today consist of 288 shares worth almost $9,000, while the overall initial value of subscriptions has ballooned to $23bn.

In the 18 years since its IPO, the corporation's revenues have expanded to $32bn and profits have climbed to $13bn, while margins have grown to 41 per cent.

No other business has ever enjoyed such phenomenal organic growth.

Property

This was the Louisiana Purchase on 30 April 1803. Napoleon Bonaparte had secured the transfer of a huge chunk of America from King Charles IV of Spain in an effort to build a French empire in the New World.

However, a rebellion in the colony of Haiti proved difficult to suppress, and war with Britain was brewing, so the French emperor needed all his resources in Europe.

Sensing an opportunity, President Jefferson dispatched James Monroe to Paris, with permission to pay up to $10m for Florida and New Orleans. But a far greater bargain lay available.

Talleyrand, the French foreign minister, offered the entire piece of America owned by the French - over 1m square miles, stretching from the Mississippi River to the Rockies, and from the Gulf of Mexico to the Canadian Border.

This land mass represented almost a third of the transcontinental US, and would double the size of the young nation. Ultimately it formed 13 states. The price agreed was $15m in total, with the president exceeding his authority from Congress to close the deal.

But it proved his most important act. The transaction was financed by London's Baring Brothers with a 3 per cent interest loan. At $15 a square mile for 1m square miles, this has to be the best property investment of all time.

Buyout

The best leveraged buyout of all time took place in 1902, 70 years before the phrase had even been invented. It was the purchase of du Pont, the giant gunpowder and explosives combine.

On January 28 1902, Eugene du Pont died, leaving the family business leaderless. So the various family shareholders decided to sell up to their main rival Laflin & Rand Powder Co.

But Alfred I du Pont, a small shareholder and cousin of the main stockholders, had other ideas. He worked in the business, and felt passionately about it - as he stated: "The business was mine by all rights and heritage, it was my birthright."

He announced that he would bid for the business, and raise the funding in a week, no less. He rushed off to meet Coleman du Pont, another wily cousin, who joined in the undertaking immediately. Together they roped in a third cousin, Pierre, in a threeminute telephone call.

They had to find the asking price of $12m in days. Between them they had less than $1m in cash. But the price was the steal of the century. The business owned huge yards and mills all over America and various other shareholdings.

The three cousins valued the assets conservatively at $24m - and possibly much more. Coleman then put an extraordinary offer to the selling shareholders: an IOU giving 4 per cent interest for $12m, plus an ongoing 25 per cent share in the new corporation. Amazingly, the sellers accepted, and the cousins bought the world's largest powdermakers for $2,100 in incorporation payments.

Coleman wrote: "We have not the slightest idea of what we are buying, but in that we are probably not at a disadvantage as I think the members of the old company have a very slim idea of the value of the property they possess."

Shortly after they bought Laflin & Rand on a similar basis, and became masters of the US gunpowder and dynamite industries, controlling assets of $60m - with a cash outlay of 1.5 per cent of that amount.